Republic of the Philippines

BATANGAS STATE UNIVERSITY

The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 406-8800 / (+63 43) 779 – 8400 loc. 1124
E-mail Address: cabeihm.pb@g.batstate-u.edu.ph | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

ACC 312
ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS
LONG QUIZ #1

Direction: Mark the best answer for each item by shading the circle corresponding to the letter of your choice on the
answer sheet provided. If the correct answer is not included in the given choices, kindly shade letter E.

PART I: MULTIPLE CHOICE - THEORIES

1. Which is false regarding a business combination accomplished in the form of a stock acquisition?
a. Two companies remain in existence after the combination
b. A parent-subsidiary relationship is said to exist
c. Consolidated financial statements are normally required
d. All of the above statements are true

2. In a business combination accounted for as an acquisition, registration costs related to common stock issued by the
parent company are
a. expensed as incurred.
b. deducted from other contributed capital.
c. included in the investment cost.
d. deducted from the investment cost.

3. What is the method of presentation required by PFRS 10 of “non-controlling interest” on a consolidated balance
sheet?
a. As a deduction from goodwill from consolidation.
b. As a separate item within the long-term liabilities section.
c. As a part of stockholders' equity.
d. As a separate item between liabilities and stockholders' equity.

4. Non-controlling interest in consolidated income is never affected by

a. Upstream sales
b. Non-controlling interest is affect by all sales
c. Downstream sales
d. None of the above

5. In reference to the downstream or upstream sale of depreciable assets, which of the following statements is correct?
a. Upstream sales from the subsidiary to the parent company always result in unrealized gains or losses.
b. The initial effect of unrealized gains and losses from downstream sales of depreciable assets is different from
the sale of non-depreciable assets.
c. Gains, but not losses, appear in the parent-company accounts in the year of sale and must be eliminated by the
parent company in determining its investment income under the equity method of accounting.
d. Gains and losses appear in the parent-company accounts in the year of sale and must be eliminated by the parent
company determining its investment income under the equity method of accounting.

6. In the year a subsidiary sells land to its parent company at a gain, a workpaper entry is made debiting
1. Retained Earnings- P Co 2. Retained Earnings - S Co 3. Gain on Sale of Land
a. 1
b. 2
c. 3
d. Both 1 and 2
7. Investment in subsidiaries should be accounted for by the parent in its separate financial statements using
a. Cost method
b. Cost method or fair value method
c. Equity method
d. Cost method, fair value method or equity method

8. IFRS 3 defines it as a transaction or other event in which an acquirer obtains control of one or more businesses.
a. Business combination
b. Consolidation
c. Merger
d. Acquisition of net assets

9. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which
the accounting is incomplete. What is the maximum term or period of the measurement period?
a. One year or 12 months from the acquisition date
b. 6 months from the acquisition date
c. 3 months from the acquisition date
d. 1 month from the acquisition date

10. Under IFRS 3, how shall an entity (acquirer) account for each business combination?
a. Pooling of interest method
b. Proportionate consolidation method
c. Acquisition method
d. Equity method

11. Under IFRS 3, what is the treatment of acquisition related costs in a business combination under IFRS 3?
a. It shall be expensed as incurred and presented as part of profit or loss.
b. It shall be capitalized as part of consideration given up in computation of goodwill or gain on bargain purchase.
c. It shall be debited to share premium
d. It shall be charged directly to retained earnings.

12. In different types of business combinations, which of the following is not considered as an acquirer?
a. The newly formed corporation in case of merger.
b. The absorbed corporation in case of consolidation.
c. The corporation that acquires more than 50% of the other corporation’s ordinary shares.
d. The corporation that controls the acquiree.

13. How shall the acquirer account for its previously held equity interest in the acquiree upon obtaining control of the
acquiree or how shall an acquirer account for a business combination achieved in stages a.k.a. step acquisition?
a. The acquirer shall treat the transaction as change in accounting policy to be treated retrospectively at acquisition
date.
b. The acquirer shall account the transaction as prior period error to be treated by retroactive restatement.
c. The acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value
and recognize the resulting gain or loss in Profit/Loss.
d. The acquirer shall not include the previously held equity interest in the computation of goodwill or gain on
bargain purchase arising from business combination.

14. It refers to the date on which the acquirer obtains control of the acquiree.
a. Business combination date
b. Acquisition date
c. Control date
d. Consolidation date
15. If at the date of acquisition, the aggregate of (1) the fair value of consideration transferred, (2) the amount of NCI
measured at either (a) fair value or (b) proportionate share of fair value of net assets of acquiree, and (3) in a business
combination achieved in stages, the acquisition date fair value of the previously held equity interest, exceeds the
fair value of identifiable net assets of the acquiree, the difference shall be treated by the acquirer as
a. Goodwill from business combination classified as non-current asset in the Consolidated Statement of Financial
Position which will not be amortized but will subject to annual impairment test.
b. Gain on bargain purchase to be recognized at acquisition date Consolidated Statement of Comprehensive
Income as part of profit or loss but attributable to parent’s shareholders only.
c. Negative goodwill to be subject to amortization for a presumed life of 10 years.
d. Impairment loss to be recorded at acquisition date Consolidated Income Statement.

16. As of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired,
the liabilities assumed and any non-controlling interest in the acquiree. As a general rule, the acquirer shall measure
the identifiable assets acquired and the liabilities assumed at their
a. Acquisition date-fair value
b. Acquisition date-book value
c. Acquisition date-face value
d. Acquisition date-carrying value

17. If the aggregate of the (a) consideration transferred measured in accordance with this IFRS, which generally requires
acquisition-date fair value; (b) the amount of any non-controlling interest in the acquiree measured in accordance
with IFRS 3, and (c) in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s
previously held equity interest in the acquiree is less than the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed measured in accordance with IFRS 3, the difference shall be classified
as
a. Goodwill to be presented as noncurrent asset
b. Gain on bargain purchase to be presented as part of profit or loss
c. Gain on acquisition to be presented as part of OCI
d. Share premium from issuance of shares

18. For each business combination, the acquirer shall measure at the acquisition date components on noncontrolling
interest (NCI) in the acquiree that are present ownership interest and entitle their holders to a proportionate share
of the entity’s net assets in the event of liquidation at either
a. Fair value
b. The present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable
net assets.
c. Either A or B
d. Neither A nor B.

19. What is the measurement of the consideration transferred or given up in a business combination?
a. Acquisition date-fair values
b. Acquisition date-book value
c. Acquisition date-face value
d. Acquisition date-carrying value.

20. Under IFRS 3, contrary to IAS 37, what is the recognition principle of contingent liability assumed in a business
combination?
a. The acquirer shall recognize as of the acquisition date a contingent liability assumed in a business combination
if it is a present obligation that arises from past events and its fair value can be measured reliably even only
reasonably possible.
b. The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date
only if it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation.
c. The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date
only if it is virtually certain that an outflow of resources embodying economic benefits will be required to settle
the obligation.
d. The acquirer shall recognize a contingent liability assumed in a business combination at the acquisition date
only if it is remote that an outflow of resources embodying economic benefits will be required to settle the
obligation.
21. IFRS 10 defines them as the financial statements of a group in which the assets, liabilities, equity, income expenses
and cash flows of the parent and its subsidiaries are presented as those of a single economic unit.
a. Consolidated financial statements
b. Separate financial statements
c. Group financial statements
d. Combined financial statements

22. The gain on sale on land from a downstream intercompany sale will be realized in the consolidated financial
statements when
a. The parent sells the land to outsiders
b. The subsidiary sells the land to outsiders
c. The subsidiary sells the land back to the parent
d. The subsidiary did not sell the land to outsiders.

23. Under IFRS 10, parent corporation is the entity that controls one or more entities. How does IFRS 10 define control?
a. An investor controls an investee when it is exposed, or has right to variable return from the investment with the
investee and has the ability to affect those returns through power over the investee.
b. An investor controls an investee when it has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities.
c. An investor controls an investee when it has the ability to influence the financial and operating policies of an
entity so as to obtain benefits from its activities.
d. An investor controls an investee when it owns more than 50% of all the outstanding capital stocks, whether
common or preferred.

24. The following increases the consolidated net income attributable to controlling interest except
a. Downstream unrealized loss from the sale of land
b. Downstream realized gain from the sale of land
c. Upstream realized loss from the sale of equipment
d. Upstream unrealized loss from the sale of equipment

25. The sale of inventory items by a parent company to an affiliated company

a. Enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining
b. Affects consolidated net income under periodic system but not under a perpetual inventory system
c. Does not result in consolidated income until the merchandise is sold to outside parties
d. Does not require a working paper adjustment if the merchandise was transferred at cost

26. Downstream sales that remained unsold by the subsidiary as of the year-end
a. Will increase both consolidated net income attributable to parent and consolidated net income attributable to
non-controlling interest for the current year.
b. Will decrease both consolidated net income attributable to parent and consolidated net income attributable to
noncontrolling interest for the current year.
c. Will increase consolidated net income attributable to parent for the current year.
d. Will decrease consolidated net income attributable to parent for the current year.

27. A parent company that uses the equity method in accounting for its investment in subsidiary has neglected to adjust
the investment balance for its share in the subsidiary’s net income or net loss. The parent’s share in the net income
of the subsidiary was P60,000 last year and P40,000 this year. If the subsidiary did not declare any dividends during
the year, which of the following is true?
a. The net income of the parent this year should be increased by P100,000.
b. The retained earnings of the parent should be increased by P100,000.
c. The net income of the parent this year should be increased by P40,000 and retained earnings should be increased
by P60,000.
d. Any of the choices is true, depending on the company’s accounting policy.
 28. Parent Company has an investment in a subsidiary which it accounts for using the cost method. Accordingly, the
original cost of P250,000 is its carrying value. On December 1, 2024, the parent declared its subsidiary as property
dividends to its shareholders, to be distributed on January 30, 2025. The fair value of the subsidiary shares amounted
to P280,000 on December 1, 2024, and P270,000 on December 31, 2024. In the books of the parent, which of the
following is true?
a. The entry on December 1, 2024 will include a debit to asset held for distribution at P280,000.
b. The entry on December 1, 2024 will include a credit to property dividends payable for P280,000.
c. The entry on December 31, 2024 will include a debit to property dividends payable for P270,000.
d. The entry on December 31, 2024 will include a debit to equity for P10,000.

29. Under IFRS 3, which reason would not contribute to the creation of negative goodwill?
a. Errors in measuring the fair value of the acquiree’s net identifiable assets or the cost of the business combination.
b. A bargain purchase
c. A requirement in IFRS to measure net assets acquired at a value other than fair value.
d. Making acquisitions at the top of a “bull” market for shares.

30. PFRS 3 requires that the acquirer must be identified in every business combination. If A Co. and B Co. combines
to form a new entity, C Co. Which of these entities would be identified as the acquirer?
a. A
b. B
c. C
d. Any of these depending on the circumstance.

PART II: MORSE TYPE QUESTIONS

a. Statement 1 is TRUE and Statement 2 is FALSE

b. Statement 1 is FALSE and Statement 2 is TRUE
c. Both statements are TRUE
d. Both statements are FALSE

A 31. Statement 1: Unrealized gains and losses from intercompany sale of depreciable assets are realized over the
remaining life of the asset as it is used by the buying affiliate.

Statement 2: Parent owns 80% of the shares of stock of subsidiary Co. and purchases an equipment from Subsidiary
Co., Subsidiary Co. recognizes a gain from the sale in his books, the gain recognized by Subsidiary Co. must be
eliminated from his separate books.

D 32. Statement 1: On the consolidated working papers, the income of the parent is allocated between the controlling and
noncontrolling interests.

Statement 2: On the consolidated working papers, the net income of the subsidiary is allocated between the
controlling and noncontrolling interests.

D 33. Statement 1: A statutory merger occurs when exactly 2 companies combine, while a statutory consolidation occurs
when more than 2 companies combine.

Statement 2: A statutory merger is recorded in the books of the acquirer wile a statutory consolidation is recorded
in the books of the acquiree.

A 34. Statement 1: A statutory merger legally dissolves all the companies in a business combination except for one, while
a statutory consolidation legally dissolves all the companies in a business combination.

Statement 2: A statutory merger is exactly the same as statutory consolidation.

B 35. Statement 1: According to PFRS 3, the party that obtains control over another in a business combination is called
the controller.

Statement 2: The two important elements in the definition of business combination under PFRS 3 are “business”
and “control”
 B 36. Statement 1: Entity A owns 90% of Entity B. The noncontrolling interest, therefore, in Entity B is 0%.

Statement 2: Restructuring provisions affect the computation of goodwill only when the acquiree has, at the
acquisition date, an existing liability that has been recognized in accordance with PAS 37.

A 37. Entity A acquires 90% interest in the voting shares of Entity B for P100. Entity B’s identifiable assets and liabilities
have fair value of P200 and P120, respectively.

Statement 1: If the NCI is measured at its proportionate share in the acquiree’s net identifiable assets, the goodwill
would be P28.

Statement 2: If the NCI is measured at fair value P10, the goodwill would be P18.

A 38. Once upon a time, Entity A acquired 20% interest in Entity B. After some time, Entity acquired additional 50%
interest for P100, at which time, Entity B’s net identifiable assets have a fair value of P180, the previous investment
of Entity A has a carrying value of P30 and a fair value of P40, and the NCI has a fair value of P60.

Statement 1: The transaction described above is a business combination achieved in stages or step acquisition.

Statement 2: The 20% previous interest is ignored when computing for goodwill.

D 39. Statement 1: A subsidiary cannot prepare separate financial statements.

Statement 2: A subsidiary often has more than one parent.

B 40. Statement 1: Intercompany transactions that occur at arm’s length transaction are not eliminated from the
consolidated financial statements.

Statement 2: To create meaningful consolidated financial statements, 100% of intercompany transactions must be
eliminated to prevent double counting of revenues, expenses, assets, and liabilities.

PART III: MULTIPLE CHOICE – LONG PROBLEMS

Problem 1 (Use the following information for the next five questions – 41 to 45)

Entity A has decided to enter into a business combination with Entity B and Entity C on July 1, 2024. The following
information was gathered from the books of the entities:

Entity A Entity B Entity C

Current assets 8,250,000 2,340,000 1,560,000
Noncurrent assets 18,750,000 15,300,000 10,200,000
Total assets 27,000,000 17,640,000 11,760,000

Liabilities 1,950,000 1,260,000 840,000

Ordinary shares, P100 par 16,491,000 10,681,200 7,120,800
Share premium 1,059,000 1,018,800 679,200
Retained earnings 7,500,000 4,680,000 3,120,000
Total equities 27,000,000 17,640,000 11,760,000

Entity A will issue 135,000 of its ordinary shares and will issue bonds with face amount of P1,000,000 in exchange for the
net assets of Entity B. On the other hand Entity A will issue 67,200 of its ordinary shares and pay P400,000 cash in exchange
for the net assets of Entity C. The fair value of Entity A’s shares is P150 and the bonds is traded at 160. The bonds are
classified as financial liability at fair value through profit or loss.

In addition, the following adjustments should be made to the current assets of Entity B and Entity C which have a fair value
of P2,700,000 and P1,380,000, respectively. The noncurrent assets have a fair value of P12,900,000 and P11,850,000 for
Entity B and Entity C, respectively.
Entity A paid the following out-of-pocket expenses in relation with the business combination:
• Legal fees for the contract of business combination 80,000
• Audit fee for Sec registration of share issue 90,000
• Printing cost of share certificates 50,000
• Broker’s fee 40,000
• Accountant’s fee for pre-acquisition audit 100,000
• Documentary stamp tax on the new shares 20,000
• Other direct cost of acquisition 70,000
• General and administrative expenses allocated 90,000
• Bond issue cost 125,000

41. At the date of acquisition, what is the goodwill resulting from the merger?
a. 7,510,000
b. 6,910,000
c. 5,470,000
d. 5,600,000

42. At the date of acquisition, what is the gain from bargain purchase resulting from the merger?
a. 440,000
b. 260,000
c. 1,910,000
d. 0

43. At the date of acquisition, what are the total liabilities resulting from the merger?
a. 5,050,000
b. 5,650,000
c. 5,525,000
d. 4,925,000

44. At the date of acquisition, what are the total assets resulting from the merger?
a. 62,675,000
b. 62,275,000
c. 63,910,000
d. 62,845,000

45. At the date of acquisition, what is the total shareholder’s equity resulting from the merger?
a. 57,290,000
b. 54,715,000
c. 56,750,000
d. 56,625,000
Problem 2 (Use the following information for the next ten questions – 46 to 55)

On January 1, 2021, Square Co. acquired 80% interest in Circle Co. On acquisition date, Circle’s net identifiable assets have
a carrying amount of P296,000. The acquisition-date fair values adjustments pertain to inventory with a carrying amount of
P92,000 and a fair value of P124,000 and equipment with a carrying amount of P160,000 and a fair value of P192,000. The
remaining useful life of the equipment is 4 years. NCI is measured at proportionate share. Information on December 31,
2021 is as follows:

ASSETS Square Co. Circle Co.

Cash 392,000 316,000
Inventory 420,000 60,000
Investment in subsidiary (at cost) 300,000 -
Equipment, net 560,000 120,000
TOTAL ASSETS 1,672,000 496,000

LIABILITIES AND EQUITY

Trade and other payables 292,000 120,000
Share capital 940,000 200,000
Retained earnings 440,000 176,000
Total Equity 1,380,000 376,000
TOTAL LIABILITIES AND EQUITY 1,672,000 496,000

Income 1,000,000 200,000

Expenses (400,000) (120,000)
PROFIT FOR THE YEAR 600,000 80,000

46. How much is the net change in the fair value of the subsidiary’s net assets since the acquisition date?
a. 100,000 increase
b. 60,000 increase
c. 100,000 decrease
d. 40,000 increase

47. What amount of goodwill is reported in the December 31, 2021 consolidated financial statements?
a. 12,000
b. 42,000
c. 48,000
d. 84,000

48. What amount of goodwill is attributed to noncontrolling interest on December 31, 2021?
a. 12,000
b. 2,400
c. 2,000
d. 0

49. How much is the noncontrolling interest in the net assets of the subsidiary on December 31, 2021?
a. 40,000
b. 80,000
c. 120,000
d. 160,000

50. How much are the consolidated retained earnings on December 31, 2021?
a. 378,000
b. 392,000
c. 472,000
d. 522,000
 51. How much is the consolidated profit in 2021?
a. 720,000
b. 680,000
c. 640,000
d. 568,000

52. How much of the consolidated profit is attributed to the controlling interest?
a. 544,000
b. 632,000
c. 454,400
d. 600,000

53. How much of the consolidated profit is attributed to noncontrolling interest?

a. 136,000
b. 8,000
c. 113,6000
d. 80,000

54. How much are the consolidated total assets on December 31, 2021?
a. 1,867,000
b. 1,894,000
c. 1,904,000
d. 1,907,000

55. How much of the consolidated total equity as of December 31, 2021 is attributed to each of the following?
Controlling Interest NCI
a. 1,417,000 80,000
b. 1,328,000 72,000
c. 1,412,000 80,000
d. 1,492,000 80,000

Problem 3 (Use the following information for the next three questions – 56 to 58)

Loco Company bought the net assets of Coco Company by issuing 100,000 shares with P20 par value. The fair value of the
shares was P4,800,000. Immediately before the acquisition, the following balances were ascertained for Coco Company:
Book Value Fair Value
Current assets 2,000,000 2,500,000
Noncurrent assets 3,000,000 4,400,000
Liabilities 600,000 1,700,000
Ordinary shares 4,000,000
Retained earnings 400,000

Loco Company also incurred the following costs:

• Professional fees to arrange business combination P50,000.
• SEC registration of newly issued shares P20,000.
• Printing and issuing of stock certificates P10,000.

56. What amount should Loco Company report as result of the business combination?
a. 400,000 goodwill
b. (400,000) gain on bargain purchase
c. 600,000 goodwill
d. (600,000) gain on bargain purchase

57. What amount should Loco Company record as additional paid in capital
a. 2,780,000
b. 2,800,000
c. 2,770,000
d. 2,720,000
 58. What amount should Loco Company report as net increase (decrease) in the retained earnings after acquisition?
a. 400,000
b. 320,000
c. (50,000)
d. 350,000

Problem 4 (Use the following information for the next two questions – 59 to 60)

On January 1, 2024, Pei Company acquired 75% of the outstanding shares of Dari Company that resulted at a gain on
acquisition in the amount of P75,000. On this date the Ordinary shares and Retained earnings of Dari Company were
P1,200,000 and P300,000, respectively.

All of the book values of the assets and liabilities of Dari Company equal their fair values except for the equipment which
was understated by P156,000. The equipment had a remaining life of 10 years.

For the year ended, December 31, 2024, Pei Company reported a net income of P600,000, while Dari Company reported
net income of P360,000 and declared dividends of P240,000.

59. What amount should Pei Company report as consolidated net income attributable to parent for the year ended
December 31, 2024?
a. 600,000
b. 776,700
c. 678,300
d. 753,300

60. What amount should Pei Company report as noncontrolling interest net income for the year ended December 31,
2024?
a. 360,000
b. 90,000
c. 93,900
d. 86,100

Problem 5 (Use the following information for the next three questions – 61 to 63)

Statement of financial position reflecting uniform accounting procedures, as well as fair values that are to be used as basis
of the combination are prepared on September 1, 2024, as follows:
A Company B Company C Company
Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000

Capital stock, all P10 par 1,700,000 1,200,000 275,000
APIC 500,000 140,000
Retained Earnings (deficit) (400,000) 2,450,000 (45,000)

A Company (acquirer) shares have a market value of P22 per share.

On September 1, 2024, A Company acquires all of the assets and liabilities of B Company and C Company by issuing
200,000 shares of its stock to B Company and 29,000 of its stock to C Company. A Company pays P10,000 share issuance
costs and P20,000 for other acquisition costs of combination.

61. What is the total goodwill to be recorded by A Company arising from the acquisition of B and C?
a. 518,000
b. 250,000
c. 268,000
d. 500,000
 62. What is the total stockholders’ equity in the consolidated statement of financial position after combination?
a. 6,308,000
b. 7,148,000
c. 6,728,000
d. 1,300,000

63. Direct costs incurred in a business combination are

a. Capitalized
b. Expensed
c. Capitalized, except for costs of issuing equity and debt instruments
d. Expensed, except for costs of issuing equity and debt instruments

PART IV: MULTIPLE CHOICE – SHORT PROBLEMS

64. Parent Company acquired goods for resale from its manufacturing subsidiary at Subsidiary’s cost to manufacture
of P24,000. Parent subsequently resold the goods to a nonaffiliate for P36,000. Which one of the following is the
amount of the elimination that will be needed as a result of the intercompany inventory transaction?
a. 0
b. 12,000
c. 24,000
d. 36,000

65. Parent Co. owns 100% of Subsidiary Co.’s outstanding common stock. Parent’s cost of goods sold for the year totals
P300,000, and Subsidiary’s cost of goods sold total P200,000. During the year, Parent sold inventory costing
P30,000 to Subsidiary for P50,000. By the end of the year, all transferred inventory was sold to third parties. What
amount should be reported as cost of goods sold in the consolidated statement of income?
a. 450,000
b. 470,000
c. 480,000
d. 500,000

66. Parent Co. owns 100% of Subsidiary, Inc. On January 2, 2024, Parent sold equipment with an original cost of
P160,000 and a carrying amount of P96,000 to Subsidiary for P144,000. Parent had been depreciating the equipment
over a five-year period using straight-line depreciation with no residual value. Subsidiary is using straight-line
depreciation over three years with no residual value. In Parent’s December 31, 2024, consolidating worksheet, by
what amount should depreciation expense be decreased?
A. 0
B. 16,000
C. 32,000
D. 48,000

67. A company acquires another company for P1,500,000 in cash, P5,000,000 in stock, and the following contingent
consideration:
• P500,000 after 2024, P500,000 after 2025, and P250,000 after 2026, if earnings of the subsidiary exceed
P5,000,000 in each of the three years.
• The fair value of the contingent-based consideration portion in P1,050,000.

What is the total consideration transferred for this business combination?

a. 7,750,000
b. 7,550,000
c. 6,500,000
d. 2,550,000
68. Parent Inc. acquired 100% of the voting common stock of Subsidiary Inc. by transferring the following
consideration to Subsidiary’s shareholders:

Cash P200,000
5,000 new shares of Parent’s P20 par common
(which is less than 1% of Parent’s outstanding stock) 100,000 (par)

In addition, Parent paid P24,000 direct cost of carrying out the combination.

At the date of acquisition, Parent’s for common stock was selling in an active market for P18 per share. Also, at the
date of acquisition, Subsidiary had the following assets and liabilities with the book values and fair values shown:
Book Value Market Value
Accounts Receivable 40,000 40,000
Property and Equipment 160,000 200,000
Land 120,000 160,000
Other Assets 80,000 80,000
Accounts Payable 30,000 30,000
Other Short-Term Debt 20,000 20,000
Long-Term Debt 70,000 70,000

Which one of the following is the fair value of Subsidiary’s net assets at the date of business combination?
a. 280,000
b. 360,000
c. 384,000
d. 480,000

69. Parent Co. issued 200,000 shares of 10 par value common stock to acquire Subsidiary Co. in an acquisition-business
combination. The market value of Parent’s common stock is P24 per share. Legal and consulting fees incurred in
relation to the acquisition are P220,000 paid in cash. Registration and issuance costs for the common stock are
P70,000. What should be recorded in Parent’s additional paid-in capital account for this business combination?
a. 3,090,000
b. 2,800,000
c. 2,730,000
d. 2,510,000

70. On January 1, 2024, Entity A acquired 80% of the outstanding shares of Entity B for a cash consideration of
P1,185,000. On this date, the book value of the shareholders’ equity of Entity B was P1,350,000. At the acquisition
date, the inventory of Entity B was understated by P75,000 and the equipment was understated by P150,000. The
acquisition date fair value of the noncontrolling interest was P300,000. What amount should entity A report as result
of the business combination?
A. 90,000 gain on bargain purchase
B. 90,000 goodwill
C. 75,000 gain on bargain purchase
D. 75,000 goodwill

**The difference between the impossible and the possible lies in a person’s determination. *

-End of Examination.